AAON, Inc. (NASDAQ:AAON) is a leading manufacturer of premium heating, ventilation, and air conditioning (HVAC) equipment for commercial and industrial applications. With a strong focus on innovation, AAON has established itself as a premier provider of highly configurable and energy-efficient HVAC solutions.
Business Overview
Founded in 1988, AAON has grown to become a global leader in the HVAC industry. AAON's comprehensive product portfolio includes rooftop units, data center cooling solutions, cleanroom systems, packaged outdoor mechanical rooms, air handling units, and a range of other specialized HVAC equipment. AAON's commitment to quality and customer satisfaction has earned it a reputation for delivering long-term value to its clients.
Financials
In the fiscal year ended December 31, 2023, AAON reported annual net income of $177,623,000 and annual revenue of $1,168,518,000. AAON's annual operating cash flow was $158,497,000, and its annual free cash flow was $49,006,000. These strong financial results demonstrate AAON's ability to consistently generate profitable growth and healthy cash flows.
AAON's performance in the first quarter of 2024 was mixed, with net sales declining 1.4% to $262,099,000 compared to the same period in 2023. This was primarily due to lower production volumes in the AAON Coil Products and BASX segments, which were partially offset by a 4.0% increase in sales for the AAON Oklahoma segment. Gross profit, however, increased by 19.6% to $92,242,000, with the gross profit margin expanding to 35.2% from 29.0% in the prior-year quarter. This improvement was driven by effective pricing management and moderating material cost inflation, despite higher labor costs.
Selling, general, and administrative (SG&A) expenses increased by 37.5% to $45,288,000, primarily due to lower sales volumes, increased employee compensation, investments in technology, and higher professional and legal fees. Diluted earnings per share for the quarter was $0.46, slightly higher than the $0.44 reported in the first quarter of 2023.
Liquidity
AAON's balance sheet remains strong, with cash, cash equivalents, and restricted cash totaling $28,367,000 as of March 31, 2024. AAON had no outstanding debt at the end of the quarter, providing ample financial flexibility to fund its growth initiatives.
Outlook
One of the key drivers of AAON's future growth is the company's focus on the rapidly expanding data center market. AAON's BASX segment, which specializes in custom-engineered air handling systems and cleanroom solutions, has seen a surge in demand from data center customers. AAON is investing in capacity expansions at its Redmond, Oregon and Longview, Texas facilities to better serve this growing market.
Additionally, AAON is well-positioned to capitalize on the industry's transition to lower-GWP (global warming potential) refrigerants. AAON has already developed a complete portfolio of equipment offerings compatible with the new refrigerant requirements, giving it a competitive advantage as customers seek to upgrade their HVAC systems.
Furthermore, AAON's focus on product innovation, particularly in the area of commercial heat pump technology, is expected to drive growth. AAON's fully electric heat pump rooftop units, which can operate down to zero degrees, are well-suited to meet the increasing demand for electrification and decarbonization in commercial buildings.
Looking ahead, AAON's management remains cautiously optimistic about the near-term outlook, while maintaining a bullish long-term perspective. For the full year 2024, AAON expects volume to be down low single digits to flat, with pricing contributing mid-single digits and gross margins improving year-over-year. SG&A as a percentage of sales is anticipated to increase by 50 to 100 basis points, and AAON's capital expenditure guidance remains at $125 million.
In the second quarter of 2024, AAON expects sales to be comparable to the same period in the prior year, with earnings per share expected to be modestly lower. However, AAON believes that the production and backlog issues experienced in the first quarter will improve through the second quarter and be largely resolved by the third quarter.
Conclusion
AAON's strong market position, innovative product portfolio, and strategic investments in capacity expansion position the company well for continued growth. AAON's focus on the data center market, the transition to new refrigerants, and the advancement of its commercial heat pump technology are all key drivers that are expected to contribute to AAON's long-term success.
Overall, AAON's solid financial performance, robust backlog, and strategic initiatives make it a compelling investment opportunity in the HVAC industry. AAON's commitment to innovation, operational excellence, and customer satisfaction suggests that it is well-equipped to capitalize on the evolving market trends and deliver sustainable growth for its shareholders.